Market is having many aspects while it is going up and downs. This blog is about the Trap in market. One is Buying trap and other is Selling trap. The trader must know this aspect in order to secure the position and can take right decision at right time to avoid losses or lock profits.
Let us talk about both type of traps.
The picture below is first such case. From this one can identify the Resistance has been broken with Gap up and closing basis, Buying is rewarding when resistance is broken. Riding the momentum, at this time trader will make BUY position to gain as the Gear is in BUYERS control or trader add more buying position to gain more by riding the Trade.
Market is about the Buyer and seller fights; Trader must know the facts when to exit preciously so that the losses can be avoided or profit can be locked. Refer below snap shot, where the Seller took complete control and Buyers who are not having proper knowledge, they remain trapped, thinking that the Market will bounce back and hope for gaining. Market is not having any emotions and their losses increases.
Sell traps are just opposite the buy traps. When the support is broken, their may be huge movement in downside and SHORT position can be rewarding. But Trader must know all aspect of short selling while support is broken.
In above picture, at point 1, the support level was tested. At point 2, The support level is broken and fresh Short position was taken or Trader add more short position to gain more.
As in below picture It failed to go down after support break and smart trader exited once they get confirmed that market is not going to go down. The Trader who is not having proper knowledge remain in short position thinking that market will go down and end up losing the capital.
Market is merciless, the trader should have knowledge (I would say proper knowledge) of all aspect of the market moves including the Buying and selling traps.
Trade is like a journey and it should be enjoyable. Suppose you are going from Junction A to B. You have taken a Bus for that. After covering some distance, you realised that it took turn toward Junction C (which is not desired by you), as soon as you realised, you should close the journey. You should not ride till Junction C and cursing yourself by losing time and money. Better to exit as soon as your plan/study says.